Distressed assets an attractive target for new industry entrants.
Distressed assets an attractive target for new industry entrants.
There have been a lot of expectations for consolidation in the cannabis industry and so it seems 2023 is already off to a busy start. Today there are three deals to mention.
Akerna (Nasdaq: KERN) announced it was selling 365 Cannabis also known as The NAV People to 365 Holdco LLC as of an agreement signed on January 11, 2023. Under the terms of the SPA, Akerna received a cash payment of $500,000 and the parties agreed to terminate an earn-out payment due and payable to the principals of 365 Holdco LLC with a deemed value of $2,283,806. According to a company statement, $100,000 of the cash payment is being held back by 365 Holdco in accordance with the terms of the SPA for post-closing accounts payable adjustments and certain indemnification claims through April 30, 2023.
Akerna acquired 365 Cannabis in a deal valued at $17 million in October 2021. At the time Akerna CEO Jessica Billingsley said, “The 365 Cannabis acquisition represents the final piece of the puzzle for connecting cannabis compliance with mainstream ERP offerings to give our clients a choice between all of the most popular financial and operational systems.” The acquisition of 365 Cannabis by Akerna was meant to accelerate the deployment of a financial solution strategy with the addition of Microsoft capabilities, further establishing Akerna as the most robust cannabis-compliant ERP system offering a complete portfolio of mainstream tax and financials.
Despite selling the asset for much less than it cost, Akerna shares were up almost 41% in pre-market trading to lately sell at $1.37. Akerna has been working to improve its balance sheet over the past year. The company said in November that it continues to explore strategic and financial alternatives to strengthen its balance sheet. It also announced in November that shareholders voted in favor of a 20-for-1 reverse stock split which was effectuated immediately thereafter in order to maintain compliance with Nasdaq listing standards.
LEEF Brands, Inc. (OTCQB: ICNAF) has completed the acquisition of The Leaf at 73740 LLC in an all-stock transaction as of January 11, 2023. The transaction was previously announced on September 19, 2022. The Leaf is a premium California retailer located in the heart of Palm Desert, California at 73740 El Paseo.
“We are extremely excited to welcome The Leaf into the LEEF Brands family and to commence our corporate strategy of acquiring top performing and best in class retail dispensaries in locations that will serve to augment LEEF product offerings in select markets. The Leaf has built a trusted retail platform in the heart of Palm Desert and we look forward to garnering invaluable customer insights through The Leaf’s platform and begin to integrate those insights throughout our organization to build a lasting relationship with the cannabis consumer. We also look forward to building upon The Leaf’s trusted retail platform and continuing the legacy of R.D Hubbard, in building a best-in-class cannabis retail experience,” said Micah Anderson, CEO of LEEF Brands. “Our acquisition strategy is two-fold: gain operational efficiencies and significantly grow revenue. We will accomplish this by consolidating operating expenses and building the presence of our in-house brands in-store.”
Wee-Cig International Corporation (OTCMarkets: WCIG) signed a Letter of Intent (LOI) to acquire The Jamaican Brew House. The Jamaican Brew House is a producer of an exclusive neutral liquid base made from cannabis that can be used in a range of food and beverage applications. The naturally soluble liquid eliminates the need for emulsification or nanoencapsulation, resulting in a finished product that has consistent CBD/THC content and is free of the taste of cannabis terpenes. JBH is the first company to utilize a botanical process to naturally create a neutral cannabis base and is further differentiated by its innovative products, unique flavor profiles, and customer-first experience, making cannabis products more enjoyable for consumers. The team at JBH includes sales and marketing leaders from the beverages industry, cannabis and food processing, and a corporate advisory team, all of whom will bring their industry knowledge to the company’s operations.
“I am extremely excited to announce we have entered into a Letter of Intent,” comments Efraim Babayov, CFO of Wee-Cig International Corporation. “The expansion of operations of The Jamaican Brew House is expected to be the focus of our company in 2023 and will bring a new and existing operating segment. I believe this acquisition once concluded will provide tremendous value to our company and shareholders.”
Russell Korus, CEO, President, and director of the company, has resigned all positions. Mr. Efraim Babayov has agreed to assume the role of interim CEO and President.
This acquisition will bring a patent-pending technology to Wee-Cig International Corporation, which the company intends to immediately commence marketing. The company said it expects to enter into a definitive agreement with JBH no later than thirty (30) days from entry into this LOI, with closing during the first quarter of fiscal 2023.
Northern Lights Acquisition Corp. revealed that it needed a few extra weeks to deliver the $70 million that it owes Safe Harbor Financial.
Bevo will take over the shuttered Aurora Sky facility as part of the completed deal.
After the market closed on Monday, 4Front Ventures Corp. (CSE: FFNT) (OTCQX: FFNTF) posted positive results — buoyed by growth from lucrative M&A deals over the past year. The vertical multi-state operator announced its financial results for the second quarter ended June 30, 2022.
4Front delivered approximately $34.5 million in total revenue during the period, versus $34.4 million the same period last year — beating the Yahoo Finance Average analyst estimate for revenues of $27 million. The gain is primarily due to increased revenue in the company’s wholesale revenue as it ramps portions of its business in California, Illinois and Massachusetts.
The earnings per share remained at a loss of one cent — in line with both the pervious quarter and the same time last year.
“Throughout the second quarter and now halfway through the third quarter, we are seeing an acceleration of business trends within our growth markets, particularly in Massachusetts and California,” said CEO Leo Gontmakhert. “Our retail locations platform-wide maintained or gained market share, despite anticipated pricing headwinds as we continue to expand our customer base with new product innovations and quality improvements. We believe we are poised for a significant leg of growth to take place over the next 12 months as we leverage our investments in state-of-the-art automation and scaled manufacturing processes, supplemented by strategic and accretive M&A.”
4Front posted an adjusted EBITDA of $9.2 million in the quarter, up 23% from the same time last year — representing an adjusted EBITDA margin of 26.7%. The company said that continued growth of adjusted EBITDA and margins is expected to persist through 2023 as the company’s operations drive increased production and higher sales volumes without material increases to overhead.
The company had $6.0 million of cash and $49.5 million of related-party long-term debt not due until May, 2024. It has 636,636,686 subordinate voting shares outstanding.
4Front also announced that it has signed a definitive agreement to acquire the California-based Bloom Farms brands. The company said it will complete the transaction with Bloom Farms in the coming weeks, and expects to announce similar acquisitions over the next several quarters.
“In the distressed and fragmented California market, we are seeing increased interest from companies looking to 4Front as their low-cost producer of choice,” said Gontmakhert. “Our long-term plans are to deepen and expand these relationships to grow revenue over time and add a retail presence in the state.”
4Front said at the start of the fiscal year that it continues to believe that wholesale growth in both Massachusetts and Illinois is poised to strengthen over the year “as additional retail comes online in those underserved states.”
“After implementing new techniques and methodologies to our production processes in Massachusetts, we made notable improvements to the yield and quality of our flower across the country during Q2,” Gontmakhert said about the progress since then. “These new processes have now been incorporated in Massachusetts and Illinois, and we are currently applying them to our facilities in Washington. As the construction of Phase 1 of our Illinois cultivation and production facility nears completion, we are looking to expand our retail footprint in the state over the coming months in preparation for that facility to commence operations in 2023.”
“We are excited by the momentum we have seen so far in Q3, and I am convinced that the next twelve months will demonstrate the power of our model at significant scale, paving the way for robust, sustained growth in the long term,” said Gontmakhert.
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